Oil Prices Slide as Fed Minutes Hint at Further Rate Hikes

On Thursday, oil prices declined for the fourth consecutive day as the Federal Reserve (Fed) kept the idea of interest rate hikes if inflation remained elevated.

In the Asian afternoon session, Brent futures ending in July slid by 0.67% to $81.35 per barrel, while the US West Texas Intermediate (WTI) plummeted by 0.79% to $76.96 a barrel.

However, the two benchmarks later recovered some losses, climbing 0.09% to $81.97 and 0.03% to $77.59, respectively.

The minutes of the Fed’s late-April policy meeting revealed that the central bank would retain interest rates for now in response to sticky inflation, but it also disclosed talks of potentially more rate hikes.

Additionally, several participants expressed their openness to a tighter monetary policy if inflation risks arise in a manner that warrants such a measure.

Higher interest rates can increase borrowing costs, reducing funds available for economic growth and crude demand in the US, the world’s largest oil consumer.

Meanwhile, analysts have identified several factors influencing the recent market softness.

These included weaker data, such as an oil inventory build, muted demand, lower refinery margins, and higher risk of run reductions.

Physical oil markets worldwide have more recently been weighed by falling demand for refineries and sufficient crude stocks.

In addition to the Fed rate decision, investors are also monitoring the upcoming June meeting of the Organization of Petroleum Exporting Countries and its allies (OPEC+), where they are expected to leave production cuts unchanged through the third quarter of 2024.

US Inventory Build Pressures Crude Demand

On Wednesday, the Energy Information Administration (EIA) reported that US oil inventories surged 1.8 million barrels last week, ending opposite to the projected 2.5-million-barrel pullback.

The surprise increase sparked worries over the US’s slowing crude demand ahead of Memorial Day, which traditionally marks the start of the travel-filled summer season.

Gasoline stocks shed around 945,000 barrels, fewer than estimates of a 1.6 million barrel draw. Distillate inventories climbed unexpectedly by 379,000 barrels versus the anticipated drop of 100,000 barrels.

Investors were concerned that persistently high inflation and elevated interest rates would strain demand growth in coming months, with gasoline supplies also soaring by 2.1 million barrels.